Why Tesla Hype Is Promising for California, Even If Tesla Isn't

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As a Southern Californian spending much of the summer in the Bay Area (to run a conference), I've quickly caught a case of Tesla fever.

And I'm not the only one.

The initial public offering of Tesla Motors, the electric car company based in the Silicon Valley, has been widely popular. This has occasioned much happy talk about the revival of California manufacturing, renewed U.S. leadership in automaking, and environmental progress that could move us off of the oil now fouling the Gulf of Mexico.

All the hype has prompted all kinds of skepticism, and quite rightly. As this analyst's report from Morningstar points out, it's far from clear that Tesla will ever make a profit. The company should struggle to transform itself from a maker of novelty cars for rich people and celebrities into a maker of an affordable mass-market cars.

But even if Tesla proves to be little more than a hype machine, its popular IPO is good news for California for a reason unrelated to the potential of electric cars: it could be a boon to California's venture capital community.

This state, for all its economic problems, still leads the rest of the country, by far, in venture capital investment. But the industry has been IN a slump, precisely because there have been so few IPOs, and even fewer successful IPOs. Initial public offerings of stock are how venture capitalists, who put in money early in a company's development, get their money back and, they hope, make a profit.

If Tesla boosts the IPO game, California would benefit, no matter what happens to Tesla.